“In 2022, the gap in flows for cheap and expensive funds grew into a chasm,” a new Morningstar report found. “For the first time since 2017, the cheapest quintile of funds pulled in over $1.1 trillion more than the remaining 80% of funds, as the cheapest 20% saw net inflows of $394 billion while the remaining 80% of funds shed $734 billion in outflows.”
It also found that the asset-weighted average expense ratio of U.S. funds fell to 0.37% in 2022 from 0.40% in 2021, saving investors an estimated $9.8 billion as a result.
"We saw substantial assets wiped from expensive funds in 2022 as investors poured their money into lower-cost funds to minimize investment costs," Bryan Armour, Morningstar's director of passive strategies research, said in a statement. "Asset managers have responded to this trend by cutting fees to vie for market share, and the end result is a win for investors."
The average expense ratio paid by fund investors has been falling for over two decades. In 2022, the asset-weighted average expense ratio of U.S. open-end mutual funds and ETFs was 0.37%, compared with 0.91% in 2002.
For active funds, the asset-weighted average expense ratio fell to 0.59% in 2022 from 0.61% in 2021, driven mainly by large net outflows from expensive funds and share classes. For passive funds, the asset-weighted average expense ratio dropped to 0.12% in 2022 from 0.13% a year earlier.
More findings from the study included:
- Investors in sustainable funds are paying a "greenium" relative to investors in conventional funds. This is evidenced by these funds' higher asset-weighted average expense ratio, which stood at 0.50% at the end of 2022 versus 0.37% for their traditional peers.
- Strategic-beta funds are an alternative to higher-cost actively managed funds. In 2022, the asset-weighted average fee for strategic-beta funds was 0.18%, higher than the figure for traditional index funds (0.12%) but significantly lower than for active funds (0.59%).
- Although some of its competition continues to gain ground, Vanguard still claims the lowest asset-weighted average expense ratio among asset managers, which was 0.08% in 2022.
The 2022 U.S. Fund Fee Study is available here.
